Atlantic Green Chemicals Site Location Study in Iceland Indriði Waage
Total Page:16
File Type:pdf, Size:1020Kb
December 2011 BIFRÖST UNIVERSITY Master’s Thesis- International Business Atlantic Green Chemicals Site location study in Iceland Indriði Waage Supervisor Andri Ottesen Executive Summary About us Atlantic Green Chemicals (AGC) is a company that is formed to execute green and environmental chemical manufacturing projects, using renewable raw material as a feed stock for its products and by using renewable energy source in the production of its products. This newly constructed firm is looking for a possible industry site to build a factory and has intended the location for its first plant to be in Western Europe. There are a few interesting sites identified as suitable for a factory of this caliber both in Iceland and other Western European countries. In Iceland’s case four sites are considered most attractive in regarding satisfying energy source. Those are Bjarnarflag in Norðurþing municipal on the north-east coast, the industrial site at Grundartangi in Hvalfjöður, a new industrial site at Helguvík in Reykjanes peninsular and in Djúpivogur municipal on the east coast. AGC is a spin-off company from the research and consulting firm Efnaferli ehf (Icelandic Process Development, IPD) with the purpose to develop implement and execute projects on the field of “green” chemical industries in Iceland and/or elsewhere. IPD was formed in 1997 to research various chemical processes that would be suitable for medium scale chemical plant productions. Gunnlaugur Friðbjarnarson: is the founder and key inventor of Icelandic Process Development Ltd. Since 2007 IPD has operated a sophisticated fully staffed pilot plant in Reykjavik for the proof of processes and the verification and characterization of utilities, energy, and specific consumption parameters. This pilot plant is well suited to develop and test various kinds of catalysts and process conditions, by using hydrogen and a variety of biomass feed stock. Rannis (Icelandic Research Council) granted IPD a 3 years support in 2008 for testing and catalyst’s developments. One of the results from operating the pilot plant resulted in a newly achieved process patent, registered in Iceland in January 2011. This patent has already been filed and is pending internationally (PCT). The patent involves processes using glycerin and other sugars to produce renewable chemicals, such as glycerin, which delivers mainly and with high selectivity propylene glycol and ethylene glycol, valuable and in high demand commodities. This process is considered more efficient and environmentally friendly than prevailing glycols processes based on petrochemicals sources. About the technology: The technology implemented for this project will be the proprietary and newly patented process of IPD and licensed to AGC. Process based on this technology reduces the emission of greenhouse effect generating carbon dioxide compared to conventional production methods that uses petrochemicals as feedstock. Not only is the project economical feasible, it also has environmental benefits that both have market value that can lead to cost effective funding from EU-green grant programs or green-tech. investment funds. Base Case The first steps in raising a factory capable of producing 30.000 tons per annum of products in an industrial scale plant in Iceland. Within two years’ time plan is to double the size of that factory again to the production capabilities of 65.000 tons per annum, and after five years from initial first step was taken the final expansion would take place and the production capability will reach 125.000 tons per annum. The engineering, procurement and construction cost for the overall glycerin purification and conversion plant is estimated to be around EUR 15, 3 million. This total installed cost has an estimated accuracy of -10/+35 % according to IPD estimation. The project is based on three phases: Phase I: Small scale industrial plant Investment: EUR 17.8 million Total production at full capacity: 30.000 tons Total sales value -: EUR 33,1 million Phase II: Operational in year 3 Additional Investment: EUR 15 million Additional production at full capacity: 35.000 tons Total sales value: EUR 71,7 million Phase III: Operational in year 5 Additional Investment: EUR 19,9 million Additional production at full capacity: 60.000 tons Total sales value: EUR 137.9 million The total investment for Phase I, Phase II and Phase III is EUR 52,7 million, expected to produce 125.000 MT of products with a total sales value of EUR 137.9 million. Results and conclusion AGC plant converts glycerin - a by-product from bio diesel production into propylene and ethylene glycols with chemical processes that rely on use of steam and hydrogen. This process in based on 9 years research and verified technology demonstration that has been patented and is one of a kind worldwide. This process is highly profitable due to two developments: Glycerin prices have dropped drastically due to EU tax policies that require use bio fuel for transport of 5,75% of total transportation fuels used in EU. This proportion will increase to 10% by 2020. Hence, there is a foreseeable supply of Glycerin as bi-product from bio diesel production at affordable prices over the next ten years or so. However, the products propylene and ethylene glycols have until now been derivatives from oil production, made in oil refineries and have to the large extent followed the world price of oil. Due to EU policies products that are made from renewable and waste recourse have priority over such products and can even be sold at premium over equivalent products, this should apply to AGC products. Capex and Opex model was constructed for all the four cases. The dependent variables were assumed the same for all the four cases. These were labor cost, construction cost, raw material cost, income from products sold abroad, and foreign marketing, logistics and storage cost. The independent variables were case specific as they were different for each case. These were electricity cost for electrolyzing hydrogen or alternatively cost of purchasing hydrogen as a bi-product or cost of abstracting hydrogen from non-condensable gases at geothermal sites. Cost of steam and logistics and storage cost. Several cost assumption were made based on references from reputable sources and NPV and IRR were calculated for each site. The required WACC is set at 15% for these four cases. The result from these calculations are that Bjarnarflag/Helguvík that assumes abstraction of hydrogen from non-condensable gases and non-transmission tariffs of electricity scores the highest with 98,4% IRR and NPV EUR 96.921.861. The second highest score is at the Grundartangi site where it is assumed that hydrogen can be purchased from Proposed Sodium Chloride factory as a bi-product the IRR for that site is 93.2% and the NPV is EUR 95.347.804. The third site option is Helguvík where AGC is going to buy waste heat as steam from the Icelandic Silica Factory. This option yields IRR of 86, 2% and NPV of EUR 89.427.385. The forth option is Djúpivogur which were storage tanks and buildings could be donated. This option yields IRR of 74, 3% and NPV of EUR 68.844.894. Even though all sites obviously yield acceptable outcomes which is 50% IRR (the higher end of accuracy limit in addition to 15% WAAC) , one shall keep in mind the accuracy of this study is -10% and + 35%. It is not unusual that total cost for erecting a new chemical plant can overrun up to 40% thus large contingency I need or more studies, bids and calculations are clearly needed to tighten the outcome accuracy figures. Confirmed bids and detailed estimates will have to be conducted and analyses. A special study has to be made what is the most economical method of abstracting hydrogen from non-condensable geothermal gases at Bjarnarflag. Kemira, the Sodium Chloride factory has not given confirmed answer if they will build their plant in Iceland or elsewhere. No formal price negotiations have been conducted and the purchasing price of hydrogen is at this stage only an educated guess and best estimate. Helguvík case is the one that is the best developed at this time and these costs there are most researched. MOU has already been signed with the Icelandic Silica Corporation with some steam price and quantity indications. Price of electricity is based on two contracts of equivalent quantity from HS Orka. A premise has already been secured at Helguvík Harbor and Environmental Impact Assessment is expected to pass in February 2012. Furthermore, option B was studied for Helguvík in case contracts with ISC would fall through, and that was to have the factory based next to Reykjanes Geothermal Power Plant where there is abundance of steam and because of co-locations with the power plant no transmission tariff would apply. However storage facility and sea logistics would still remain in Helguvík. This option yielded almost same outcome as option A, in spite of more transportation and somewhat more storage capacity. The recommendations from this study are as follows. a) Continue developing the case for Helguvík as the primary option. The outcome meets required cut off rate above of 50% IRR. The costs figures have the least inaccuracy out of these four cases. The company need to get a firm budget quotes and perform basic engineering to further tighten of cost estimates. The plant is next to largest urban area where access to skilled labor, mostly mechanics and tradesmen, is guaranteed. The plant is only 5 minutes from the International Airport which is very important as financing of the plant is planned to be largely from international sources. Furthermore, the company plans to sell its alcoholic products as a fuel blend additive, which is about 80% distributed out of Reykjavik.